IBM reported solid third-quarter growth across nearly its entire product and service portfolio as the company raised its outlook for the rest of 2025.
IBM said its generative AI book of business now stands at more than $9.5 billion with AI continuing to drive demand for the company’s software, consulting and hardware offerings—the latter including the System z17 mainframe upgrade introduced earlier this year.
The book of business for generative AI consulting services alone accelerated to $1.5 billion in IBM’s third quarter, ended Sept. 30, IBM executives said during the company’s earnings call Wednesday.
“AI adoption is accelerating and hybrid cloud remains the foundation of enterprise IT,” IBM President and CEO Arvind Krishna said during the call with financial analysts, noting that those two align with IBM’s hardware, software and consulting portfolios.
[Related: IBM CEO On Growing Channel Revenue, Quantum Computing Opportunities, And Why ‘AI Is Not Magic’]
IBM reported $16.33 billion in revenue for the quarter, up 9 percent year over year (up 7 percent in current currency) from $14.97 billion in the third quarter of 2024. Net income for the quarter was $1.74 billion, $1.87 per share, compared to a $330 million loss one year before.
The company also raised its outlook for all of 2025, saying it now expects revenue growth of more than 5 percent for the year and expects $14 billion in free cash flow for the full year.
“We exceeded our expectations on revenue, profitability, adjusted EBITDA earnings per share and free cash flow, reflecting the strength of our portfolio and the disciplined execution across our business,” said senior vice president and CFO James Kavanaugh on the call.
(Despite the upbeat results, IBM shares were trading around $268.76 at 8:00 PM EDT, down $18.75 or 6.52 percent from the $287.51 close on Wednesday.)
Krishna said IBM’s strong results across revenue, profit and cash flow exceeded expectations “with all of our segments accelerating sequentially. These results underscore the strength of our business model and portfolio and the innovation we are delivering to clients.”
“The breadth of our AI offerings is a key differentiator, combining an innovative technology stack with consulting at scale,” the CEO said.
The latest generative AI book of business figure marks a substantial increase from the $7.5 billion figure in the 2025 second quarter. It shows how much of a driver AI has become for many facets of IBM’s business. (Book of business includes sales and new contract signings for software, services and consulting revenue. IBM uses the book of business metric to track momentum and growth in specific strategic areas of its business.)
IBM reported software revenue of $7.2 billion in the quarter, up 10 percent year over year, with automation revenue gaining 24 percent and hybrid cloud (Red Hat) revenue growing 14 percent. Data processing revenue was up 8 percent while transaction processing revenue declined 1 percent.
Headwinds in the consulting market had led to concerns that IBM’s consulting revenue in the third quarter could be flat or even decline. But the company reported consulting revenue of $5.3 million, up 3 percent from a year earlier, including a 5 percent revenue gain in intelligent operations and a 2 percent increase in revenue from strategy and technology.
“Consulting [revenue growth] accelerated, reflecting growing demand for AI services as clients need help designing, deploying and governing AI at scale,” Krishna said on the call.
Hardware Revenue Growth
Infrastructure revenue in the quarter grew a robust 17 percent to $3.6 billion in the quarter, including a 28 percent gain in hybrid infrastructure, a 10 percent gain in distributed infrastructure, and a whopping 61 percent increase in IBM System z revenue – driven by the company’s latest mainframe System z refresh cycle.
“IBM z [mainframe products] delivered its highest third-quarter revenue in nearly two decades…fueled by the early success of our z17 platform [that’s] purpose built for AI and hybrid cloud with breakthrough capabilities in real-time inferencing, quantum-safe security and AI-driven operational efficiency,” Kavanaugh said.
“With continued strength in [mainframe] z17, we now expect infrastructure to contribute over one and a half points to IBM’s revenue growth this year,” Kavanaugh added.
“Our biggest beneficiaries of AI infrastructure is our mainframe and our storage portfolios,” Krishna said. “With the latest generation [of our] mainframe…a fully populated single system is capable of doing 450 billion inferences per day. As clients purchase that capability, that will be both a further accelerant to mainframe infrastructure growth, but it also comes with a software stack that helps them do all of that inferencing.”
“If I look at our storage portfolio, as many people have realized, you need a lot of storage to be able to do model training, and we are going to be beneficiaries of that inside our storage portfolio,” the CEO added.
IBM, meanwhile, continues to expand its use of AI technology internally to improve its operating margins by utilizing AI across finance, supply chain, sales, human resources, service delivery and customer support “to improve efficiency and reduce costs,” Kavanaugh said.
Despite economic uncertainty, Krishna said he sees IT budgets “staying healthy” into 2026 because businesses and organizations continue to leverage IT for competitive advantage and realize operational efficiencies. And he said IBM’s hybrid cloud and automation product portfolios are well-positioned to meet the needs of the latter.
In response to an analyst’s question, Krishna said that so far IBM has not seen any impact of the U.S. federal government shutdown. He said the government largely purchases IBM software on a subscription basis and he noted that IBM’s systems are running critical operations such as Social Security Administration and Veterans Administration payment systems
Kavanaugh said he is optimistic going into next year.
“We’re operating in an attractive TAM [total addressable market] and a positive backdrop. From a technology perspective, overall, we feel very good about technology being a source of competitive advantage, and you’re seeing that play out in areas around hybrid cloud modernization, around AI, around automation, in many areas. And we see that continuing in the market, so we couldn’t be more optimistic around ’26.”
